S&P 500 forecast: What now for US stocks after the wobble?

European markets bounced back in the first half of Thursday’s session, following yesterday's plunge, while US index futures were flattish. Oil prices retreated a little as Trump downplayed Iran’s attacks on US bases in Kuwait and Bahrain, suggesting he is still keen to secure a deal. The S&P 500 suffered its biggest setback in several days yesterday, wiping out three days’ worth of gains in a single session and putting the benchmark index on track for its first weekly decline in 10 weeks. While it is far too early to conclude that the bull market has run its course, the sell-off serves as a reminder that even the strongest trends experience periods of volatility. With US equity indices trading near record highs and sentiment remaining largely optimistic, investors are now weighing whether this is merely a healthy pullback or the beginning of a more meaningful correction.

 

Crypto sell-off and elevated oil prices weigh on sentiment

 

One of the key concerns for investors is the sharp weakness seen in the cryptocurrency market. Bitcoin’s recent plunge has triggered widespread selling across the broader digital asset space, raising fears that risk appetite may be cooling.

 

Although cryptocurrencies and equities are separate asset classes, financial markets are increasingly interconnected. When traders experience significant losses in one market, they may be forced to reduce exposure elsewhere to free up capital or meet margin requirements. This dynamic can create temporary selling pressure in equities, particularly after an extended rally.

 

For MicroStrategy, well it has been its biggest losing period to date with the company’s Bitcoin positions turning sharply lower due to the crash. MicroStrategy's stock, $MSTR, is down 77% since its record high. More losses cannot be ruled out if the crypto carnage continues.

 

Meanwhile, an underwhelming earnings report from Broadcom has also undermined chipmakers in premarket.

 

While oil prices eased back this morning, they remain elevated, keeping fears over stagflation alive. High oil prices raise costs for businesses, squeezing consumer spending power and complicating the Federal Reserve’s efforts to bring inflation under control.

 

Bond markets have also responded to these concerns. Treasury yields moved higher again yesterday as investors reassessed the outlook for inflation and monetary policy. Higher yields tend to be particularly challenging for growth-oriented stocks because they reduce the present value of future earnings. Given the heavy weighting of technology and growth companies within the S&P 500, rising yields remain an important risk factor for the broader market.

 

All eyes on non-farm payrolls

 

Investor attention is now shifting towards Friday’s Non-Farm Payrolls report, which could provide important clues about the health of the US economy.

 

So far, employment-related data released this week has generally pointed to a resilient labour market. That has supported the view that the US economy continues to outperform many other developed economies despite everything that’s going on right now.

 

However, the market’s reaction to the jobs report may not be straightforward. A weaker-than-expected report (consensus is at 85K) could raise concerns about slowing economic growth, especially if inflation pressures remain elevated due to higher oil prices. In that environment, the Federal Reserve may find itself with limited flexibility to cut interest rates.

 

Conversely, a moderately strong report could reinforce the so-called “Goldilocks” narrative, where economic growth remains healthy without generating excessive inflationary pressures.

 

Technical S&P 500 forecast: Levels to watch

 

Yesterday’s sell-off has not yet caused significant damage to the broader bullish trend, but it is a potential warning sign that the rally could unravel amid stretched valuations and technically overbought levels.

 

 

The first important support for the S&P 500 is around 7,517, marking the previous breakout high from mid-May. Below that, the psychologically important 7,500 level represents the next key area for buyers to defend. Further downside support can be found the 7,420 area.

 

The line in the sand remains the recent swing low at 7,334. As long as this level holds, the broader uptrend remains intact. A break below 7, 334 would create the first meaningful lower low on the chart and could open the door to a deeper corrective move as technical selling pressure accelerates.

 

On the upside, initial resistance is seen around 7,565 and 7,593, which are some important intraday levels. Above that, attention shifts back to the record high at 7,620.

 

For now, the longer-term bullish trend remains m in place. The key question is whether buyers once again step in to purchase the dip, as they have consistently done throughout the rally, or whether the combination of crypto market weakness, elevated oil prices and higher bond yields signals the beginning of a more sustained period of consolidation/correction.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R